Microeconomic Theory Exam Bank
Course Introduction
Microeconomic Theory explores the fundamental principles governing individual and firm decision-making in markets. The course analyzes consumer behavior, production and costs, market structures such as perfect competition, monopoly, and oligopoly, and the mechanisms by which prices and outputs are determined. Students will examine concepts such as utility maximization, profit maximization, market equilibrium, and the impact of government intervention. Emphasis is placed on rigorous analytical tools including mathematical models to describe and predict economic phenomena, preparing students for advanced study in economics and practical applications in policy and business.
Recommended Textbook
Microeconomics Principles and Applications 6th Edition by Robert E. Hall
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Page 2
Chapter 1: What Is Economics
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Sample Questions
Q1) Economics is the study of
A)scarcity under conditions of democracy
B)choice within a system of free speech
C)financial markets
D)the role of government in a market system
E)choice under conditions of scarcity
Answer: E
Q2) A statement of fact that can be verified by observation is
A)an abstraction
B)a positive statement
C)a normative statement
D)a philosophical conundrum
E)the basis of an assumption
Answer: B
Q3) Opportunity costs arise because of resource scarcity.
A)True
B)False
Answer: True
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Chapter 2: Scarcity, choice, and Economic Systems
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Q1) Bill can cook dinner in 45 minutes and mow the lawn in 1.5 hours.Eileen can cook dinner in 1.5 hours and mow the lawn in 2 hours.Bill's opportunity cost of mowing the lawn is
A)1/2 of a dinner
B)2 dinners
C)3/4 of a dinner
D)1-1/3 dinners
E)2-2/3 dinners
Answer: B
Q2) Suppose Bob and Tom are writing jokes for a their new TV show.Suppose there are two types of jokes,political jokes and jokes about celebrities.The number of jokes that can be produced by each person in each category are listed in Figure 2-12.From this table they should
A)have Bob specialize in both political and celebrity jokes
B)have Tom specialize in both political and celebrity jokes
C)cooperate on the writing of both political and celebrity jokes
D)have Bob write political jokes and Tom write celebrity jokes
E)have Tom write political jokes and Bob write celebrity jokes
Answer: D
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Page 4
Chapter 3: Supply and Demand
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Sample Questions
Q1) The term quantity demanded
A)can refer to either an individual or all buyers in a market
B)only refers to all buyers in a specific market
C)only refers to individual buyers in a market
D)refers to how many units of a good a buyer would be willing and able to purchase at a series of prices
E)determines price when it intersects with the supply curve
Answer: A
Q2) Given the demand curve for laptop computers,if the government began to encourage households to own a computer by providing a subsidy to each family that buys one,
A)both the equilibrium price and quantity of laptops will increase
B)both the equilibrium price and quantity of laptops will decrease
C)the equilibrium price of laptops will increase but the equilibrium quantity will decrease
D)the equilibrium price of laptops will decrease but the equilibrium quantity will increase
E)subsidies to households have no effect on either the supply or demand
Answer: A
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Chapter 4: Working With Supply and Demand
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Sample Questions
Q1) In Figure 4-5,at a temporary price of $4,
A)all of the following occur
B)a surplus occurs
C)the supply curve will shift leftward
D)the demand curve will shift rightward
E)equilibrium will eventually occur at approximately $3.50
Q2) Figure 4-1 shows the supply and demand for socks.If a price ceiling of $10 per pair is imposed by the government,the number of pairs actually purchased will be
A)2 pairs
B)8 pairs
C)5 pairs
D)1 pair
E)6 pairs
Q3) The incidence of an excise tax
A)refers to who really pays it
B)always falls on suppliers
C)is equally divided between demanders and suppliers
D)is determined by the number of demanders
E)is decided by the government when the tax is imposed
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Page 6
Chapter 5: Elasticity
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Sample Questions
Q1) The price elasticity of demand is the
A)percentage change in price divided by the percentage change in quantity demanded
B)average change in price divided by the average change in quantity demanded
C)percentage change in quantity demanded divided by the percentage change in price
D)average change in price divided by the average change in quantity demanded.
E)percentage change in quantity demanded divided by the average change in price.
Q2) The cross-price elasticity of demand between Texaco gasoline and Mobil gasoline sold at the same intersection would be
A)positive
B)negative
C)0
D)1.0
E)-1.0
Q3) The price elasticity of demand is usually equal to the slope of the demand curve.
A)True
B)False
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Chapter 6: Consumer Choice
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Sample Questions
Q1) If income decreases,there will be a parallel inward shift of the budget line.
A)True
B)False
Q2) An increase in the price of the good measured on the horizontal axis of a budget line diagram will
A)make the budget line flatter
B)make the budget line steeper
C)leave the budget line unchanged
D)cause a parallel inward shift of the budget line
E)cause a parallel outward shift of the budget line
Q3) The change in total utility arising from a one-unit increase in consumption of a good is referred to as
A)average utility
B)the principle of diminishing marginal utility
C)real income
D)marginal utility
E)price
Q4) The budget line is useful for illustrating the notion of opportunity cost.
A)True
B)False
Page 8
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Chapter 7: Production and Cost
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Sample Questions
Q1) For the total product curve shown in Figure 7-3,for which unit of labor is the marginal product 20 units of output?
A)first
B)second
C)third
D)fourth
E)fifth
Q2) Figure 7-1 shows the amounts of coal that a mining company could produce per week by changing the number of workers while capital and technology remain constant.How many workers could the mine hire before the marginal product of labor begins to decline?
A)1 worker
B)2 workers
C)3 workers
D)4 workers
E)5 workers
Q3) The "short run" may vary in length from industry to industry.
A)True
B)False
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Page 9
Chapter 8: How Firms Make Decisions: Profit Maximization
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Sample Questions
Q1) If a firm is able to cover its variable costs by operating in the short run then,at its best output level,the
A)marginal revenue is equal to marginal cost
B)vertical distance between MR and MC is maximized
C)vertical distance between TR and TC is minimized
D)marginal cost curve lies above the marginal revenue curve
E)marginal cost curve is minimized
Q2) Figure 8-4 indicates data for the total cost curve and the demand curve facing Jonathan's Riding Mower Shop.The quantities indicated are potential daily sales.If Jonathan sells 5 riding mowers per day,he will earn an economic profit of
A)$3,000
B)$1,750
C)$2,150
D)$1,850
E)$2,050
Q3) Economic profit is another name for accounting profit.
A)True
B)False
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Chapter 9: Perfect Competition
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Sample Questions
Q1) In the short run,a perfectly competitive firm will shut down if A)its total costs exceed its revenues.
B)its total variable costs exceed its revenues.
C)its total fixed costs exceed its revenues.
D)it can't earn a positive economic profit.
Q2) Bennie's Top Factory produces 1,000 tops per day for a total daily revenue of $2,000.Bennie's total costs would rise by $2 if it produced the 1,001 top.Because marginal revenue and price are equal and constant,
A)profit would rise by $2 if Bennie produced one additional top B)profit would fall by $2 if Bennie produced one additional top C)profit would not change if Bennie produced one additional top D)profit will fall by some unknown amount if Bennie produced one additional top E)the total cost curve must have shifted to the left
Q3) Because perfectly competitive markets rarely exist in the real world,the model has limited usefulness.
A)True
B)False
Q4) In a perfectly competitive market,a new firm can enter without any cost.
A)True
B)False
Page 11
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Chapter 10: B:Perfect Competition
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Sample Questions
Q1) Which of the following is not a characteristic of a perfectly competitive market
A)buyers and sellers are well informed about the market
B)standardized product
C)many buyers and few sellers
D)easy exit out of the industry
E)easy entry into the industry
Q2) One of the defining characteristics of a perfectly competitive market is
A)both buyers and sellers are well informed about the market
B)a small number of buyers
C)high barriers to entry
D)a small number of buyers but a large number of sellers
E)buyers are better informed about the market than sellers
Q3) Diminishing marginal returns are the reason why some industries have positively-sloped long-run average cost curves.
A)True
B)False
Q4) In a perfectly competitive market,a technological advance allows all firms to earn higher economic profits in the long run.
A)True
B)False
Page 12
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Chapter 11: Monopolistic Competition and Oligopoly
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Sample Questions
Q1) Sarah and Marisa are the only two baby-sitters available in a small town.Figure 11-14 indicates different combinations of hourly rates charged by the two teenagers,along with their weekly net earnings.If Sarah and Marisa do not collude,then
A)in equilibrium,both will charge $4 per hour
B)in equilibrium,both will charge $5 per hour
C)in equilibrium,Sarah will charge $5 per hour;Marisa will charge $4 per hour
D)in equilibrium,Sarah will charge $4 per hour;Marisa will charge $5 per hour
E)there is no predictable equilibrium
Q2) Consider the monopolistically competitive firm whose demand curve and cost structure are illustrated in Figure 11-1.In the short run the firm's fixed costs are
A)$100
B)$200
C)$300
D)$400
E)$500
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13
Chapter 11: Monopoly
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Sample Questions
Q1) Figure 10-1 shows the demand schedule facing the only gas station in a small Midwestern town.The station does not price discriminate.Which of the following statements is correct?
A)The demand curve facing Friendly Stop has a constant price elasticity.
B)If the station increases sales from 100 to 110 gallons,marginal revenue will equal $1.40.
C)If the station increases sales from 100 to 110 gallons,marginal revenue will equal $14.00.
D)Demand is price elastic throughout the demand schedule.
E)The owner of the station would be unwilling to charge either $1.00 or $0.90 per gallon.
Q2) Unlike firms operating in more competitive markets,monopolies never shut down in the short run.
A)True
B)False
Q3) A monopolist that is earning economic losses will,in the long run,
A)exit the industry.
B)shift it's demand curve rightward.
C)stay in the industry,since eventually the price will have to rise.
D)encourage competitors to enter the industry in order to enliven it.
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Page 14
Chapter 12: Labor Markets
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Sample Questions
Q1) As applied to labor demand,the marginal approach to profit
A)is irrelevant
B)requires setting marginal cost equal to the wage rate
C)requires setting marginal revenue equal to the wage rate
D)says that a firm should increase employment if doing so adds more to revenue than it adds to cost
E)says that a firm should decrease employment if doing so adds more to cost than it adds to revenue
Q2) If the demand for automobiles increases,which of the following would also experience an increase in demand?
A)automobile workers
B)skateboards
C)bicycle manufacturers
D)ice cream
E)financial analysts
Q3) An increase in the cost of acquiring human capital will shift the labor supply curve to the left;eventually,this will tend to decrease the equilibrium wage rate.
A)True
B)False
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Page 15
Chapter 13: B: Labor Markets
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Sample Questions
Q1) Figure 12-2 depicts labor demand and supply in a nonunionized labor market.The original equilibrium is at point A.If a labor union subsequently establishes a union shop and negotiates an hourly wage of $20,then
A)the labor supply curve and the labor demand curve will shift leftward by equivalent amounts
B)there will be an excess supply of 3,000 workers
C)there will be an excess demand of 7,000 workers
D)there will be an excess supply of 4,000 workers
E)there will be an excess supply of 7,000 workers
Q2) If an employer begins to pay higher wages to white workers,then in the short run
A)wages for white workers would fall
B)wages for nonwhite workers would rise
C)profits would rise as nonwhite workers leave the firm
D)output will increase and prices will fall
E)profits would fall as nonwhite workers leave the firm
Q3) If prejudice originates with employers,market forces work to reduce discrimination and lower wage differences between the favored and unfavored groups.
A)True
B)False
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Page 16
Chapter 14: Capital and Financial Markets
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Sample Questions
Q1) A newly issued bond with a face value of $8,000 and no coupon payments is priced at $7,000.The bond will mature in one year.What is the yield on this bond?
A)$1,000
B)12.5 percent
C)14.3 percent
D)$272.73
E)It depends on the interest rate
Q2) A decrease in the interest rate is represented by
A)a leftward shift of a firm's investment curve
B)a rightward shift of a firm's investment curve
C)a movement along a firm's investment curve,upward and to the left
D)a movement along a firm's investment curve,downward and to the right
E)a movement along a firm's investment curve,upward and to the right
Q3) The price/earnings (PE)ratio of a stock is found by
A)dividing the most recent year's dividend by the current stock price
B)dividing the current stock price by the after-tax profit per share
C)dividing the most recent year's dividend by retained earnings
D)dividing the current stock price by the Dow Jones Industrial Average
E)dividing the current stock price by the present value of the firm
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Page 17
Chapter 15: Economic Efficiency and the Competitive Ideal
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Sample Questions
Q1) If Bill Gates voluntarily gives some of his money to a destitute family,it would be a Pareto improvement.
A)True
B)False
Q2) The height of the market supply curve
A)at any quantity shows the value -- to someone -- of the last unit of the good consumed
B)at any quantity shows the cost -- to someone -- of purchasing the last unit of the good
C)at any quantity shows the marginal cost of producing the last unit of a good
D)shows the market value of a good or service
E)measures the size of the side payment necessary to achieve a Pareto improvement
Q3) The welfare loss due to a price floor
A)is caused by a decrease in quantity
B)is the dollar difference between producer surplus and consumer surplus
C)is measured as the area above the market price and below the demand curve
D)is measured as the area above both the market price and the supply curve
E)is a Pareto improvement
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Chapter 16: Governments Role in Economic Efficiency
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Sample Questions
Q1) The free rider problem occurs when
A)individual gainers will not contribute the side payment needed for an efficient outcome
B)those harmed will not contribute the side payment needed for an efficient outcome
C)side payments are not necessary for an efficient outcome
D)the marginal cost of arranging a side payment is zero
E)the total cost of arranging a side payment is zero
Q2) Price-fixing agreements among competing firms are a violation of the Clayton Antitrust Act.
A)True
B)False
Q3) If a monopoly arises as a natural monopoly
A)using anti-trust law to break it up is a poor remedy
B)anti-trust law should be used to break it up
C)that is most likely due to a patent or copyright
D)it will evolve into a perfectly competitive market in the long run
E)it should be encouraged,because it is "natural"
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Chapter 17: Comparative Advantage and the Gains From International Trade
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Sample Questions
Q1) If there are high transportation costs
A)the terms of trade will also be high
B)the result could be incomplete specialization
C)large countries will have an advantage in trading with small countries
D)small countries will have an advantage in trading with large countries
E)trade will be based on absolute advantage rather than comparative advantage
Q2) Politically,one reason trade restrictions are common is that
A)the many beneficiaries of free trade each gain a small amount whereas the few losers,lose enough to lobby for restrictions.
B)the beneficiaries of free trade collectively gain a small amount whereas the few losers,collectively lose much more.
C)the few beneficiaries of free trade each gain a large amount and the many losers,lose enough to lobby for restrictions.
D)foreign corporations bribe politicians.
Q3) Tariffs are government policies designed to encourage international trade.
A)True
B)False
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Page 20